The first time I heard about cryptocurrency, I was in a movie theatre. Over bites of popcorn and commercials for the latest in automotive, my friend divulged that she was buying and selling CryptoKitties, spending real coin on digital cats that vary in value based on their distinct visual appearance and, of all things, genotype. Her enthusiastic explanation punctuated with words like “Blockchain” and “Ethereum” left me feeling out of my element, but equally resolute in the notion that this so-called cryptocurrency was much more than an elaborate version of Pokémon Go.
In the months following, my cryptocurrency education forged on. Like most, I watched with awe (and self-loathing) as Bitcoin surged in value, a single coin peaking at $17,000 USD in December 2017, up from $1,000 per unit the year before. Like most, I was so swept up by the commotion surrounding this digital currency that, admittedly, I wasn’t even sure what I was excited about. On the surface, the premise was clear — cryptocurrency offers a new medium of exchange between people who choose to buy and sell them, as with any fiat currency. And their digital nature lends themselves to being amenable to online transactions. But a deeper inquiry into their sheer purpose revealed sophisticated economics and technical prowess that financially crippled countries, like Venezuela, are desperately adopting in hopes of regaining their economic autonomy.
For starters, let’s deal with the jargon. Bitcoin, Ethereum and 1,976 other members to date comprise the group known as cryptocurrencies: mediums of exchange value (just like ordinary money) that exist in the digital space and rely on encryption to enable transactional security. Cryptocurrencies vary in their abundance, value and prestige. Bitcoin, the most expensive of virtual coins, is worth more than $6,000 per entity, while Ethereum, the second most popular of digital currencies, is priced at a more reasonable $208 per unit.
The buying and selling of cryptocurrency are marked on a digital transactional ledger – known as Blockchain. Blockchain serves as an online form of bookkeeping that promotes accountability and transparency of digital information on the Internet. It cannot be copied and is incorruptible. Inherent to its creation is the fact that Blockchain database isn’t housed or controlled by one sole entity (or computer) but is hosted by millions of computers simultaneously – this promotes accessibility while also complicating the lives of hackers. Importantly, because each transaction is recorded on enumerable computers worldwide in real time, corruption is widely avoided, as undoing a transaction would involve an enormous amount of computing power to override the entire network for that particular cryptocurrency.
The advent of Blockchain was conceived to resolve major is-sues with conventional banking. For one, blockchain technology is decentralized – all payments can be processed without a third-party entity, and the system is safeguarded by heavily monitored (peer reviewed!) cryptographic algorithms akin to those used for online banking. Your cryptocurrency is not controlled by an organization or individual, and transactions can be made without divulging your personal information. Blockchain outperforms online banking in terms of speed, as transactions are continuously verified by cryptocurrency miners, irrespective of time or day of the week.
Yes, I said miners. Aptly named after gold that exists first below the ground and begs to be unearthed, each cryptocurrency lives within its designed protocol and is produced few at a time by computer processing. Bitcoin, for instance, will only ever have 21 million coins in existence, and they are produced by miners. To generate the ever-lucrative coin, each miner occupies a node — a powerful computer capable of running and maintaining Bitcoin software, allowing the constant relay of information inherent to Bitcoin’s transparency. Any computer can become a node — Bitcoin software is free but requires a huge amount of energy and storage space (running the network, as of January 2018, required 145GB of computer space, which will grow as demand does). Nodes distribute Bitcoin around its secure network — one node transmits the information to a few known computers, and this process repeats itself until the whole network has received the information — this happens within seconds. Transactions that need adding to the Blockchain are grouped into blocks and are only successfully transcribed after solving complex mathematical proofs. This final hurdle is achieved in a rather archaic fashion — there is no other way to solve the proofs than trying billions of calculations per second. For Bitcoin, the result of the proof is a number (only used once) that lies between 0 and 4,294,967,296 — no biggie. The reward for the successful Bitcoin miner is: Bitcoin. As of January 2018, the reward was 12.5 bitcoin, which today would amount to a cool $75,000 USD.
While investors have certainly taken note of the stunning cryptocurrency growth in the last 12 months, countries with crippled national currencies are equally intrigued by the digital currency’s potential. Venezuela, a country stricken with hyperinflation that’s projected to hit an unfathomable 1,000,000% by year’s end is consequently left with a fiat currency that is an almost worthless against the US dollar (in March, a 100,000 sovereign bolivar note was worth a mere 0.50 dollars USD on the black market). Venezuelan President Nicolás Maduro first uttered word of an oil-backed cryptocurrency out of economic desperation back in February. The Petro (the name of the cryptocurrency that Venezuela’s sovereign bolivar is tied to) is one of the first country-backed digital currencies, and its value is linked to various natural resources: 50% oil, 20% gold, 20% iron and 10% diamond (amounting to roughly $50 USD). Tying the value of Petro to a product of known worth does control for the price volatility hallmark to its cryptocurrency cousins. However, Petro critics rebut that its very creation shatters the pillars of Blockchain; its value has been set by a central authority, challenging Blockchain’s inherent decentralization. And as Steven Hanke, professor of applied economics at Johns Hopkins University, explained to Futurism in an interview, the change from bolivar to Petro does little to rectify Venezuela’s ailing economy. He explains, “The removal of zeros and the introduction of a new currency with a new name does absolutely nothing. It’s a cosmetic kind of change”.
The rest of the world is taking watch of Venezuela’s cryptocurrency pursuit. Upon its inception, President Maduro offered early investors a 60% discount on Petro to incentivize trade. The government reported that they made $3.3 billion USD in initial investment, but there has ironically been no digital ledger reporting these transactions, nor has there been any independent third party confirming this. Serious doubts have since been instilled in the authenticity of the Petro; critics believe that it’s illogical to implement a cryptocurrency backed by oil to replace a fiat currency, because oil is “an entity that has an external debt [the Venezuelan government] cannot pay”. And so far, no Petro has been seen in circulation among anyone, let alone Venezuelans, signaling that they too have perceived the fraudulent and inexistent nature of this digital coin.
In light of the doomed Petro, a bona fide, non-state backed cryptocurrency is gaining popularity among Venezuelans as means to maintain value against the spiralling sovereign bolivar. Dash, an open-source cryptocurrency established in 2014, is within the top 20 largest cryptocurrencies worldwide. Venezuelans are their second largest market of consumers, ahead of crypto-crazed countries like China and Russia. Retailers are following suit — according to Dash’s creators, more than 200 businesses each month are signing up to accept the cryptocurrency, including brand names like Subway and Calvin Klein. Businesses are allured by Dash’s nearly instant payment processing and transaction fees that cost pennies. Unique to Dash is that 10% of cryptocurrency generated by mining falls into a “treasury”, a pool of money that Dash’s managers allot to projects and ideas that endorse Dash adoption. As of August 2018, $1 million USD has been invested in Venezuela to raise awareness about Dash – money that has been spent on billboards, a merchant adoption program, and a help centre with live support.
It seems as though Venezuelans are ready and willing to gamble on a decentralized — and at times erratic — cryptocurrency to salvage their paralyzed economy. It is a bold, but potentially liberating, move by a desperate populace that has been riddled with hardship and financial distress. But they may not be the only country that finds a lifeline in digital currency — Turkey, Argentina and Zimbabwe are equally enduring high inflation crises of their own and their citizens are equally beginning to embrace cryptocurrency. Undoubtedly, the adoption of decentralized digital coin throughout Venezuela is still ongoing and is not without its hurdles; only a nation-wide embrace of cryptocurrency will facilitate the transactional ease that is seen with ordinary money. Still, it’s worth acknowledging that noble is the pursuit of economic freedom in any form, and nobler still are the efforts of Venezuelans to take back financial manners from a corrupt government and into their own hands. The use of cryptocurrency may be that small first step.
Ellinore Doroshenko
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